January 1st was an important day for the legal cannabis industry. That was when California became the largest state to allow the open sale of recreational marijuana. Industry observers spoke optimistically of how legal weed could add $5 billion to California’s economy. Just days later, Attorney General Jeff Sessions decided to scrap the Cole Memo, a Department of Justice policy that de-prioritized the enforcement of drug prohibition in states that had voted to legalize marijuana. The move made headlines and has sent cannabis stocks plummeting. While concerned about the potential ramifications of the announcement, many cannabis businesses believe that the announcement will have little impact on the long term future of the industry, though it has the potential to complicate financing in the short term.

Since California first voted to legalize medical marijuana two decades ago, the cannabis industry has been operating under many layers of frequently contradictory policies. At the highest level, cannabis remains a controlled substance under federal law. However, opponents of the war on drugs have slowly chipped away at the enforcement mechanisms over time, both with documents like the Cole Memo and amendments that prohibit the Justice Department from spending money to interfere with state medical cannabis laws.

“The Cole Memo is a ‘feel-good’ U.S. Dept of Justice guidance that does not actually restrain local U.S. AGs from enforcement but sets department priorities with regard to marijuana, e.g., sales to minors or diversion of product out of state,” said Nathaniel Gurien, CEO of FinnCanna, a financial firm for the industry. “The Rohrbacher-Blumenauer budget amendment (which prohibits use of federal funds for DOJ enforcement of federal marijuana laws against state-sanctioned medical marijuana licensees) is still likely to be renewed at the end of January.”

The Rohrabacher-Blumenauer amendment first passed in 2014 and protects the medical cannabis industry from the Justice Department. The amendment must be renewed each year. As long as it stays in place, the Justice Department may, in theory, be able to prosecute legal medical marijuana retailers, but would lack the funding to do so in practice. States which allow recreational marijuana would lack this protection, though.

“Our initial take on the news that AG Sessions is rescinding the Cole Memo is that such rescission will in a vacuum allow local U.S. Attorneys to decide to prosecute people and businesses violating the Controlled Substance Act, whether or not they are acting in accordance with a robust regulatory state regime,” said Mitchell Kulick, a partner at Feuerstein Kulick, a New York law firm specializing in the cannabis industry.

“However, any such federal enforcement/interference action, will, for the time being, be limited to actors in recreational states because the [Rohrabacher-Blumenauer] amendment to the spending bill for the U.S Justice Department…prohibits the DOJ from using any of its budget/resources to interfere with or prosecute state legal medical marijuana businesses,” Kulick continued, saying that a “very complex and complicated” area of the law had just become more so.

Industry figures are watching Congress for a sign of what future drug policy might look like. The Rohrabacher-Blumenauer amendment was last renewed as part of a stop-gap spending measure that expires on January 19. Congress will need to vote again to extend the program and some have suggested that the amendment be altered to address states with legal recreational marijuana as well.

“The Attorney General has previously stated that he believes Congress needs to address the scheduling of cannabis in relation to the Controlled Substances Act. Hopefully, this decision will act as a wake up call to our congressional leaders, as national polling continues to show strong bi-partisan support for legalization,” said Erik Knutson, CEO of CanCore Concepts, which offers branding and consulting services to the industry.

In the meantime, the Cole Amendment announcement has had significant financial impacts on the industry.

The announcement has caused increased industry concern around banking and, by extension, safety. Finding sources of business capital has been a recurring problem for cannabis companies in states that have voted to legalize. Many banks are unable or unwilling to lend to an industry with uncertain legal status. This has pushed many dispensaries and growers to operate primarily in cash, which makes them popular targets for robberies.

“Banking has been a major issue within the industry. This reversal will throw further doubt into the financial sector, potentially leading to an increase in violent crime as cash transactions will once again be the norm,” said Knutson.

The Trump administration has sent mixed signals to the cannabis industry for the past year. As a senator, Attorney General Jeff Sessions was no fan of marijuana and the president himself is a teetotaler. However, during the campaign, Trump said that the issue should be left to the states.

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